California Court of Appeal Reinforces Prior Holdings and Allows Employer to Enforce Arbitration Award in Contract of Adhesion

by Selman Breitman LLP
Contact

In Da Loc Nguyen v. Applied Medical Resources, No. G057702 (Cal. Ct. App. October 14, 2016) (hereinafter “Nguyen”), the California Court of Appeal upheld a ruling compelling arbitration of plaintiff’s individual claims despite his argument that an arbitration provision in an employment application was procedurally and substantively unconscionable.  The Court of Appeal’s decision, replete with statements acknowledging the procedural and substantive unconscionability of the arbitration clause, highlights the continuing trend towards finding any possible means to enforce an arbitration award, including reading mutual arbitration obligations into the contract and severing an otherwise impermissible costs provision.

The plaintiff in Nguyen sued his former employer, individually and on behalf of a putative class, seeking unpaid overtime, meal and rest period compensation, penalties plus injunctive and equitable relief and Defendant moved to compel arbitration based on the arbitration clause in plaintiff’s employment application (hereinafter, the “Application”).  Importantly, the Application contained an instruction to “PLEASE READ CAREFULLY, INITIAL EACH [OF FOUR] PARAGRAPH[S] BELOW.”  The third paragraph, which plaintiff initialed, contained Defendant’s arbitration provision, including four important clauses that impacted the lower court and Court of Appeal’s decision.  First, plaintiff agreed to submit to binding arbitration of “all disputes and claims arising out of or relating to [the Application].”  Second, Plaintiff agreed to “arbitrate all disputes relating to his employment that could not be resolved by informal resolution.”  Third, the arbitration provision stated that arbitration would be conducted under the rules of the American Arbitration Association (hereinafter “AAA”) (but did not attach those rules).  And, fourth, the arbitration provision stated that the plaintiff and company would each pay one-half of the costs and expenses of arbitration. 

The lower court struck the class action allegations, ordered plaintiff to arbitrate his individual claims, and ordered the defendant to pay all costs of arbitration other than those that plaintiff would necessarily pay in a court proceeding.  Plaintiff sought an immediate appeal under the death knell doctrine applicable to putative class actions or, in the alternative, as a petition for writ of mandate.  The Court of Appeal accepted it as a petition for writ of mandate, holding that the death knell doctrine did not apply.

Turning to plaintiff’s arbitration claims, the Court of Appeal reiterated that an arbitration clause will be enforced unless it is both procedurally and substantively unconscionable.  Beginning with procedural unconscionability, the Court of Appeal stated, and Defendant admitted, that the arbitration provision was, to some extent, procedurally unconscionable because it was a contract of adhesion.  Here, the Court ruled that the Application only gave rise to modest unconscionability because plaintiff was sufficiently educated and competent in the English language to understand the arbitration clause and obtain a copy of the AAA rules.  Furthermore, the Court ruled that failing to attach the AAA rules was not procedurally unconscionable because plaintiff’s arguments did not rise from the rules themselves, but from the wording of the arbitration clause.

After determining that the procedural unconscionability was only modest, the Court addressed each of plaintiff’s substantive unconscionability arguments.  First, the Court ruled that the Application was not substantively unconscionable because it was unilateral.  While the Court acknowledged that unilateral arbitration clauses, like the one at issue, containing the words “I agree” may be substantively unconscionable, the Court read a mutual arbitration obligation into the Application, noting that the Application repeatedly referred to “all disputes” – suggesting that it also applied to defendant’s disputes.  Second, the Court also ruled that the Application was not substantively unconscionable because it did not give defendant a free peek at the plaintiff’s claims.  The Court held that the informal resolution provision was not unilateral and did not require disclosure of the basis for plaintiff’s claims.  Third, the Court acknowledged that the requirement that plaintiff pay half of the arbitration fees was substantively unconscionable, but the Court avoided this issue by upholding striking that provision from the arbitration clause.  Finally, the Court determined that the Application was not substantively unconscionable, despite the fact that it failed to provide the procedural requirements enumerated in Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, because the Application incorporated the AAA rules which, in turn, provide adequate procedural safeguards to satisfy Armendariz.  In light of the foregoing, the Court determined that there was not sufficient substantive unconscionability to hold the arbitration clause unenforceable.

For employers, the Nguyen decision is important because it highlights the degree to which courts are willing to go in order to enforce what may be an unconscionable arbitration provision.  It also highlights three important ways to ensure that arbitration clauses are enforceable.  Specifically, arbitration clauses should: (1) clearly state that both parties agree to arbitration – making the arbitration obligation mutual; (2) specify the type of AAA rules that will govern a dispute and – ideally – provide both parties with a copy of those rules; and (3) in the employment context, specify that the employer will bear the costs of arbitration.  These slight modifications will ensure that a court does not have to go to extreme lengths to find an arbitration clause enforceable.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Selman Breitman LLP | Attorney Advertising

Written by:

Selman Breitman LLP
Contact
more
less

Selman Breitman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.